This page is a continuation of my predictions page but
I'll be posting things for you to use as a guide for surviving the crash of our
economy. The postings, here, are from a private online bboard I run. I'm simply
posting what I've posted there, here, on my web site.

Here is the interview in its entirety.
George's questions are in
Arial blue,
and my answers are in Times New Roman black.

Life After Trading?

A good friend
of mine was recently let go at a major trading
operation in Chicago where he was supervising a
group of bond traders. I had a chance to pick
his brain a bit about what's "out there" and,
since he's got an excellent handle on
generational turnings (after Strauss & Howe)
what he sees on the road ahead is useful.
Following the interview, be sure and flip over
to this week's ChartPack where the 'end of the
world' is slowly resolving into view...

A
Chat with Jim Goulding

I'd like to begin by
asking you at the macro level: Have we arrived
at a point where normal human trading activity
has become superfluous; in other words have we
reached the point where machine trading is
taking over the entire industry?

How can a human compete with Goldman
Sachs front running orders? When I was in the
trading pit, people went to jail for this! I was
there, in 1988, when the FBI infiltrated the
pits and prosecuted people for the same things
Goldman is doing now. (http://www.allbusiness.com/specialty-businesses/110748-1.html)

The damage has
been done already. The big brokerage houses
decimated the part of the trading industry that
did everything out in the open. That’s why they
called it Open-Out-Cry! Everyone could see you
and knew what you were doing in the trading
pits. If you were to go back and look at every
charge the FBI brought against the traders in
the CBOT, you’d realize that they were bullshit.
Oh, yes, some traders did break the rules and
they ruined those people’s lives for very small
infractions. However, no one who was a big
trader went down because there weren’t big
trader’s front running orders. Why weren’t they?
Because it was illegal and the trading pit is
completely transparent. The dark pools and
trading exchanges the big brokerage houses use
and own are unfair and they aren’t transparent.
Why-oh-why would anyone use them?

Bottom line: Laws have to change in
Washington that will get the big brokerage
houses out of the “we can own an exchange”
business or computers will take over. I believe
that the laws will change. In the writings of
Strauss and Howe, they state that the old ways
of doing business will change for good, in
4th Turnings (Winter). Therefore,
I believe the trader will make a come back. It
won’t happen quickly and there’s already been an
enormous amount of damage done already.

I've noticed
as a smalltime trader for my own account only,
there seems to be a distinct move afoot on the
part of market making entities to eliminate some
of the most useful psychological indicators
which small traders have traditionally used. I
put in this category the Federal Reserve M3
right, along with the NYSE program trading
statistics.

As you know,
program trading statistics started being phased
out when program trading volume began
constituting nearly 3/4 of stock market volume.
The NYSE then began reporting only one side of
these traits in an effort to understate the
impact of program trading. However, when even
that failed, the program trading numbers became
wildly deemphasized.

Now that you
-- a top notch Bond trader and trading
instructor in Chicago -- have been let go, and
given the fact that most trading outfits are
only interested in higher rate quantitative
analysis geek's who can squeeze a fraction of a
cent off the smallest of repeatable trance, are
we to infer that machine replacement of humans
in the loop is presently upon the markets?

Yes, you should
infer that the computers are taking over.
And…have taken over. However, as I wrote above,
the trader will make a come back.

You and I
have both done it from in this amount of
research into the economics of long wave. I
think we agree that working in a second
depression, and I'd further speculate that while
neither of us claims to have particularly
precision insight, in general we are nowhere
near the bottom just yet. Given this, and the
possibility that humans as trading platforms are
becoming obsolete, do you and I need to write
the definitive book on the obsolescence of
humans as traders?

There’s
definitely a book to be written here George.
Now, if we can just find a $100k advance!

Now let's
talk about risk: what do you think the right
risk allocations are? As you know, in my weekend
reports I have disclosed that my allocation is
approximately 1/3 real estate, one third
precious metals, and one third cash and
treasuries. At least that's the ideal position I
would like to be in. As a practical matter my
precious metals holdings are smaller, my real
estate and hard goods holdings are larger, and
can a person ever have enough cash on hand or
treasuries?

I love your
holdings. I actually like the USD too. One
aspect that everyone misses in a crisis like the
one we are experiencing today is the
deflationary effect is very good for our
currency. Many millionaires were created in the
30s and they didn’t do a thing. They simply held
on to their cash. Joe Kennedy increased his
worth 7 fold between 1929 and 1935. All that he
did was hold his cash. Why? Because in
deflationary times, cash today is worth more
tomorrow. That’s the opposite of what you and I
grew up with. It’s unheard of!! We are used to
inflation, not deflation. So, cash is good. I
don’t care how many dollars they print, as long
as the USD is the world currency and we have the
biggest navy, the point is moot. USD rules.
Wanna get away from a currency, dump the British
Pound! Yikes.

Real estate? I like YOUR real
estate. However, there’s not much to like around
this country. I did a study on the housing
market in 2002 and put it on my web site,
http://www.jamesgoulding.com/predictions.htm#Housing
. I still believe it’s very relevant. We haven’t
hit bottom in that market yet.

Its mind-boggling hearing people say
they are looking to take advantage of the fall
in housing prices. Oh…please…don’t. We still
have at least 20% - 40% more to go in many
areas. Unless you’re getting a rock bottom
fantastic deal, then back away. The numbers
you’re seeing in the press are not the real
deal. If you’d like to see the actual numbers,
read www.doctorhousingbubble.com. He’s the man.

One other thing on housing. The
GSE’s, Freddie and Fannie, may not be
buying mortgages or lending like they used to,
however, the FHA is spending huge amounts of
money. The FHA is simply lending like there’s no
tomorrow. This is one reason why the housing
prices have held up. Not to mention the Fed
buying all the crap MBSs.

A lot of
so-called investment gurus have been telling
their clients for some period of time that the
right place to be is either foreign stocks, or
in bonds, or buying a rental houses right and
left, or any number of other strategies such as
leveraged bonds, leveraged stocks, and a
multiplicity of other concepts. Do you as a
trader see anything near a sure bet that will
allow present-day small investors to have at
least some confidence that the purchasing power
of their investment will be maintained over a
long period of time? If so, what might that
strategy be?

No. There’s no safe answer. It’s all
a risk. However, if you put a gun to my head I’d
bet on several things. Gold, Silver, abandoned
industrial parks, industrial parks where small
entrepreneurs can rent a nice small warehouse,
water, short-term treasuries, the Aussie, New
Zealand and Canadian dollars, Turkey and Korea.
Stay away from the PELL countries (Poland,
Estonia, Latvia, and Lithuania).

Here are some brief explanations why:

1.Gold
and Silver
can’t hold debt. They can’t accumulate any debt
whatsoever. All paper currency is Debt
and we are in a debt crisis. Metals are a
no-brainer.

2.
Abandon industrial parks,
industrial parks where small entrepreneurs
can rent a nice small warehouse. Any
administration trying to pull-out of a credit
crisis will devalue their currency as quickly as
possible so they can export goods and services.
Therefore, selling merchandise to other
countries becomes a valuable commodity. Our
country's factories were decimated over the last
40 years. That’s going to change with the dollar
staying low. Furthermore, there’s a new
revolution in small manufacturing. The best info
you can read and get a quick understanding what
it’s about, is in the last issue of WIRED
magazine.
http://www.wired.com/magazine/2010/01/ff_newrevolution/

3.
Water. Pay
very close attention to companies buying water
rights and get on board with them. It’s a huge
issue that’s flying under the radar.

4.
Short-term treasuries.
On November 4th, 2009, the Treasury
department said it was extending duration out
the curve from about 4.9 to 7 years (approx).
Meaning, they’re selling MORE longer-dated
maturities and LESS shorter-dated maturities.
They do this so they can pass the buck down the
road to the next generation. Buy 2 and 3yr
treasuries.

5.The
Aussie, New Zealand and Canadian dollars.
No brainer. These are the ‘young’ commodity
producing countries. They have lots of natural
resources and most of the G-20 want them.

6.South
Korea.
They’re slowly taking over where Japan left off in the late 80s. They
just keep making better and better products.

7.The “PELL” countries (Poland, Estonia,
Latvia, Lithuania). The world geographical chess
game will turn towards these countries. Look at
a world map. Russia lost a lot when they lost
control of Poland, Estonia, Latvia, and
Lithuania. Most importantly, they lost major
access to the Baltic Sea and their ports.
Remember, whoever has the biggest navy controls
the world currency (among other things). I
encourage you to read the first 50 pages of The
Next 100 Years. (http://www.stratfor.com/next100years
). There will be battles for these countries.
Wars.

Turkey is one of the very few
countries in Asia that isn’t land-locked. Their
real estate is golden. This is the riskiest bet
of all. But, if you can get on board, Turkey
should prosper. Again, look at the world map.
Their access to water is undeniable. If they
could just get their political crap in order!

Now let's
talk about bonds specifically: we have three
possibilities before us, why is that deflation
is already here as evidenced by the Fed G. 19
report while the second possibility is that
inflation is here as evidenced by the most
recent trip to the grocery store. The third
alternative is that we are in a worst of all
worlds position where we are experiencing
deflation on the one hand in personal assets,
but inflation on the other when we get to the
area of personal necessary expenditures. Care to
give us any guidance?

I’m in the deflation camp. Strauss
and Howe’s work shows this era to be
deflationary and I haven’t seen anything that
shows we won’t repeat it (deflation) again. The
problem is, "in what products will deflation
occur?" You can look at it the same way when
you’re trying to pick which asset will increase
in price the most. However, this time we’re
trying to pick which asset won’t fall the most.
None of us are used to that. It’s completely
foreign to us.

Bonds actually perform well in
deflationary times. Like I wrote above, 2 and
3yr bonds should do fine. I think 10s and 30s
have a bit of a yield-rise coming, as the US
Treasury increases supply. But, it won’t be that
big of a rise. 5 yr treasuries are fine too.

Generation Xers are a bunch of cheap
folks (I’m one of them). They’ll continue to
shop for the cheapest price and force companies
to lower prices or they’re out of business.
Period. GenX’s problem isn’t that they spend
money on themselves; it’s that they spend it on
their kids, the Millennials. Once GenX reels-in
their spending on their kids (and they are
beginning too), it’s going to get ugly.

Everyday-prices in most areas are
coming down and that will continue. That’s my
call and I’m sticking to it!

With regard
to your book Winter is Coming, could you
enumerate some of the factors that lead to your
conclusion that the absolute bottom of our
current economic depression could be as late as
2014 or maybe 2015?

I went back in time and looked at
how society acted during a credit crisis, like
this one. However, I used generational theory
and that states that different things happen
when generational archetypes are lined-up in a
specific way. You can see a visual of that here:
http://www.jamesgoulding.com/GenerationsII.htm
.

I wrote a chapter called the
Line-Up, in
Winter is Coming, specifically about
this scenario. Looking back at the other Winter
era’s, it seems like we go through a period of
disbelief that the event is really happening. As
a society we can’t believe it. How could this
be, we say?. Of course it will be different this
time around, we say! Well…it’s not. It never is.
Then things appear to get a bit better and we
think it’s over. People get complacent and angry
(like now), then the economy slides
down…slowly…slowly…and…we can’t believe that
it’s happening again! It’s almost as if we go
through
Elizabeth Kubler Ross’s 5-stages of dying.

I go back and read the papers from
the 1930s. The daily papers. They’re so similar
to today’s papers. We’re in the anger stage. I
just don’t see this credit crisis playing out
much differently than the 30s as far as time
goes (length of the crisis).

In the 30s they hit bottom in 1933,
then almost took that bottom out again in 1937.
Most politicians and scholars think we are
repeating 1936 right now. I’d say they’re in
denial! We haven’t had our 1933 yet. I’d say
it’ll come around late 2012-2013. The crisis
happened about 18 months before I thought it
would, when I was writing Winter is Coming. So,
that should move the bottom up to about
2012-2013.

As you know,
and as you and I have often spoken, one of the
keys to economic recovery is new technology.
Unfortunately new technology must have an
appropriate expression as a consumer good. I've
been telling readers for a long time I don't see
any new breakthrough products coming out. Apple
putting a new brand of lipstick on the net book
ain't gonna cut it in my view. As a scholar of
Strauss and Howe do you believe that we lack the
kind of fundamental technological breaks that
will spur a recovery and this is one reason we
seem destined to replay the Great Depression?

I like Harry
Dent’s work on invention cycles. If you believe
his work then we aren’t going to see any
innovations for a long time. Like, 40 years. The
Boomers (b1946-1960) are the inventing
archetype. They brought the computer and
internet to the masses. The Xers (b1961-1981)
advanced the Boomers invention in many areas.
The Millennials (b1982-2003) use them to bring
society together and the Homeland generation
(b2004-20??) will enhance the Boomers
inventions.

What will bring us out of this
economic depression is the Millennials turning
away from the individual ways of the boomers and
turning to the job of bringing the USA together
as a society; like the GI’s did with they’re
great societal reconstruction projects, (roads,
civic buildings, space program). WWII brought
the USA closer together. That’s a fact. It
didn’t happen all at once, but it happened over
the course of the war. I just hope we don’t
repeat that this time around. I don’t think we
will.

In a similar
vein, Robert Ely wrote in his book hard times
the way in, the way out, that the real cause of
the first Great Depression was industrialization
of agriculture. And in his book he points out
that due to farm mechanization, more than
7,000,000 acres of former rangeland required to
raise draft animals, became unnecessary due to
high tech. This caused farmers to plant
excessive crops which in turn drove down prices,
and the result was the collapse of commodity
pricing which led to the first Great Depression.

I disagree with his reasoning for
the depression. I wrote a paper on the
agriculture revolution of the 1920s. Part of the
collapse of Agri prices were absolutely due to
the mechanization, however, WWI had a lot to do
with the collapse. Prices came down hard in 1921
and never recovered.

Would you
agree, or disagree, that our second depression
which seems now to be dawning, and I'd argue
accelerated by the planned obsolescence of human
traders, is being driven by a similar human
replacement regimen? I refer specifically to the
obsolescence of human effort brought about
writing advanced of silken ships and software,
which I view as more impacting in many ways then
was the arrival of gasoline powered tractors on
American farms in the 1920s.

It’s so similar isn’t it! We’re
always trying to raise production, which means,
get a robot to do the human job.

I don't know
about you Jim, but I have a hell of a time
telling my children what they should be doing in
the fields of education and career planning in
order to avoid extremes in the economy. The best
I've been able to do, is a son who's in EMT, and
two daughters -- one in the grocery business
since people have a habit of eating, and the
other working for the state of Washington in
their unemployment offices.

Any ideas
what we should be telling our kids now based on
your experiences over the last week where you've
come had on into human obsolescence issues? Or,
am I seeing this entirely too negatively?

I don’t think
you’re being negative. There’s a lot to be
negative about. Hell, I’m Irish and I’m always
looking for the next potato famine. As far as
our kids, I think they’re going to do what they
want to do whether we tell them to or not. The
Millennial generation’s archetype is Civic/Hero.
Society will reward them throughout their lives.
We’ve done it since they were born and we will
continue that practice into their old age. Just
like the GIs were taken care of, the Mills will
be too.

I call the Mills the Teflon
Generation because they don’t internalize the
world issues like boomers and Xers do. They are
completely different. They see the world as a
society, not individuals. Boomers can’t even
comprehend the word Civic, let alone hero. And,
Xers? We all hate ourselves and think all the
problems in the world are our fault. We are
looking to the Mills to save us.

If I am,
please forgive me, but in the urban survival
reports where I write about the new dark ages
and the happily ever after land for corporate
owners where human labor isn't needed and
machines produce all profits...

If you were
to summarize your present outlook for the
American economy, what would it be?

The economy will shrink again. It
has too. The last ten years were built on a
house of cards (pun intended). We didn’t create
anything. We need to rebuild our infrastructure
with durable products that last 100s of years.
Better concrete would be a start (hey how about
using volcanic ash instead of sand!) That’ll
happen. We will lose more jobs. Whole industries
will collapse. Newspapers and magazines? Bye. We
can’t afford them anymore. It’s too cheap to put
them on a Kindle.

Everyone will get local
because they’ll have no choice. They’ll turn
towards community and civic projects. They’ll
drive less, therefore walk more, therefore, mom
and pop shops make a comeback; in a very big
way. It’s all about community. The economy in
America is turning inward. We will export, and
repatriate money. We will build more fences on
our borders and racism will come alive again.
It’s already happening. Today’s Muslims are
yesterday’s Russians. It's sad but the GIs are a
very racist generation. So will the Millennials.

We’ve made a pass through an 80-year
economic window. Everything has changed. Soon,
the Xers will be burnt-out by their task master
do-nothing Boomer bosses and the Millennials
will take note. The Mills will work less-harder
than their boomer and Xer parents. And if you’d
like to see productivity dive, wait until the
Homeland generation starts getting into he work
force in the 2020s.

If you could
live anywhere in the world, and do anything on
earth in order to make a living for yourself and
your family now, where would it be, and what
would it be?

I’d live right here in the Midwest. Write books.
Draw cartoon pictures for sick children in
hospitals.

Not
everyone's got a clear a vision of what's ahead
as Jim Goulding and a some time spent on his
web site:
www.jamesgoulding.com seems like a
worthwhile way to do a little 'brain feeding'.

I haven’t been writing much this year because
there’s simply nothing to write about.
Everything appears to be going the way it
should. We are in Winter.

From an economic perspective the past cycles
are repeating. The elite are raiding the system.
They devalue assets while they hold cash. Then,
they buy assets for pennies on the dollar. They
did it in the 1600s and they’re doing it now.

Nothing shocks me. For instance, the
much-written-about bonuses. It’s typical of a
boomer archetype to do this and typical of the
press to report the unimportant. The bonuses
aren’t the problem, the system is the problem.
That system will not get fixed, as history has
shown.

I admit the one feeling I consistently have
to deal with is helplessness. Watching the
boomers do this is very hard. Yet, Strauss and
Howe told us to expect it. I knew it was coming
but living through it is difficult. From
watching millions put out of work for the
benefit of the few, to devaluation; it’s wrong
and I know-not how the people executing this
sleep at night. Yet, they do.

I’ve spent most of the last three months
reading stories (you can see many of the
pertinent ones here:
http://www.google.com/reader/shared/17346443862498828151
) digesting and trying to come up with a
direction the market will move. The DOW and S&P
are happy at the moment. They’ll rally (go up)
to 9300 over the next couple of months. They’re
so oversold it’s ridiculous. I’d look for the
public to breath a collective sigh of relief
that the worst is behind us as we rally…believe
me it is not. The worst is NOT over. Not even
close.

To understand how the public will behave when
the market (stocks) heads higher, we only need
to look to the price of gasoline, and what
occurred over the last year. When gas went up to
3.90 – 4.50 a gallon society pulled back and
came up with alternatives. They vowed to change
forever. Granted, we have made some changes but
as gas fell we increased our driving miles
dramatically. In essence, we collectively
believe(d) that the worst is behind in gas
prices. Our old behavior showed up as soon as
prices dropped. That kind of behavior will show
up again as the stock market goes higher.
Personally, I’d use any rally in the stock
market as a gift. I’d take advantage of that
gift and get out, not in.

Things will be getting ‘financially happy’
over the next few months. Enjoy it but don’t buy
into it, this is far from over.

The first 40 pages give an outline of the
international hot-spots for 2010. Then, 2020. If
you put the book down after that you'd be OK.
The rest is an in-depth look at the outline and
some very very detailed predictions.

I've used Strauss and Howe's Generational and
Turnings theory to help identify where we are
headed in the US. However, I was lost
internationally. Friedman does a good job
explaining why we invaded IRAQ and Afghanistan
and continue to run subversive operations around
the world. Not to mention what other countries
are running the same types of operations around
the world, and why.

Well, yesterday the Obama administration sent
a brand-new message to China about exactly what
they think of their Central Banks handling of
China’s currency. That message was in the form
of a statement from the Treasury elect, Tim
Geithner. He said, “…China is manipulating its
currency.”

Holy shit.

Since proclaiming this (which we all know is
true) the treasury market has gotten hammered
hard. Furthermore, we (the USA) have refunding
coming up in a week, then another sale next
month to the tune of about 100 Billion. Guess
who is one of the biggest buyers and owner of US
Treasuries? China. Who have we counted on to buy
our debt over and over again for the last 20
years? China.

Put all arguments about what China’s currency
manipulation has done to the manufacturing
industry and export industry in this country.
Forget about applauding Obama for finally
speaking the truth…whatever. That’s not the
point of this post. The point is there are going
to be very real consequences from speed of the
new policy. Already we are receiving rhetoric
from China about the statement and we are seeing
heavy selling from China this morning in the
treasury market.

We, as a country, will find other buyers of
our currency (bonds) in the future. Namely, you
and I. Since our economy is flipping back to a
‘savers’ economy, you and I will eventually pick
up the slack. However, we need buyers now. We
are selling massive quantities of debt to “bail
us out “. The Washington people’s plan is to
sell debt to “bail us out”. That’s what they are
doing; right or wrong. So, you probably
shouldn’t tell one of your best customers to
eff-off.

China spent 40 billion dollars on the
Olympics, knowing they were going to take a
financial-bath and incur the wrath of their
people because of the inconveniences forced upon
them (like firing millions of factory workers to
stop the pollution). However, they went ahead
with all their plans so they’d “save-face “ in
the world. So they’d not look bad, in front of
the world. How do you think they’re going to
react to a statement like Mr. Geithner’s? Not so
good.

This story is all over the place this
morning. The MSM has picked it up in a big way
and that’s going to piss-off China.

Below are some estimates of holdings of foreign
entities of US debt. I took them from a WSJ
article, written by Bob Davis, on November 3rd,
2008, titled, “U.S.
Depends Less on China – Well, At Least a Little
Less”.
The list gives a good view of the size of the
money we are talking about.

Generational
theory states that we are moving towards
protectionism. That’s what Obama did yesterday.
However, the speed at which he did it was way
too fast. It wasn’t a shot-across-the-bow, it
was a direct hit.

Also, we knew
Obama was going to do something to turn us, as a
nation, towards protectionism because of the
people on his advisory staff and the people he’s
hiring. For instance, Larry Summers, the
incoming National Economic Council director and
Obama’s top economic adviser during the campaign
is quoted in the same article I mentioned above:

That quote was
there for a purpose. It told us what Obama was
going to do if he won. But the speed at which he
did it was not good.

We know we are
headed to repatriation, rebuilding our export
business, and all the other things generational
theory tells us. However, it must be done at a
slower pace.

The conclusion
that can be reached, about the new President’s
actions, are that we are going to suffer very
quickly unless he has some back-door-plan about
whose going to buy our debt over the coming
months. If he doesn’t, layoffs will accelerate.
The recession will accelerate.

When the bank bailout
program was passed, the one
thing smart people wanted
was a change to the cause of
the problem, "LEVEL 3
ASSETS" .That didn't come to
fruition. The same rules are
in place. Therefore, the
banks are doing it again.
Meaning, they're putting
massive amounts of money
back into Level 3 Assets.

Let us all remember we
must pay attention to what
the powers-that-be say and
what they do. What they do
will ultimately affect all
of us.

The following is a story
explaining what the banks
are currently doing
concerning Level 3 Assets.

It’s all about rollover. Can the US “Rollover” its debt? Will we be
able to issue 2 trillion of debt next
year? Let’s look at a market that is
rated higher (safer) than the US
Treasury Market. That would be the
German Bond Market. Currently the German
5yr CDS’ are trading at 48. They are the
safest bonds on the planet. The USA’s 5
yr CDS’ are trading 67.

With that information let’s take a
look at what happened yesterday at a
German Government Bond Auction, from the
Financial Times (FT.COM).

German bond sale struggles to hit
target

Investors shunned one of the most
liquid and safest assets in the world on
Wednesday as a German bond auction came
close to failing in a warning sign for
governments attempting to raise record
amounts of debt to boost their slowing
economies.

The auction of two-year bonds saw
only just enough bids to meet the €7bn
($9bn) the government wanted to raise.
This was almost unheard of before this
year as investors typically clamor to
buy these securities.

“This is a sign that demand among
investors is already waning for
government bonds because of the huge
supply.” [….]

There are no better adjectives. That
bond sale was a warning. It was a shot
across the bow. If that auction failed
the current bond bubble we are in would
have burst very quickly.

Everyone is piling money into what is
being perceived as a safe-haven market,
the US Government Treasuries. Why would
they do this? Because the perception is
they are safe. They are rock-solid.
No-way-no-how those bonds are going to
default! Buy ‘em!.

The federal debt of the US went up
39% in the 3rd quarter, 2008.
The most ever. We’ll break that record
this quarter. The treasury was able to
sell the debt because there was a need.
However, the treasury will have to
resell (rollover) the debt at a later
date, when it comes due. They resell
debt all the time. It’s nothing new,
however, we’ll hit a ‘tipping point’ and
when we do it will get ugly very
quickly. Granted, we’ll survive, but the
pain we’ll endure from the tipping point
to survival will….well…suck.

The treasury just keeps piling on
more debt. They’re doing it
exponentially.

Since Bush II took office, we’ve gone
from 5.7t to 10t debt. That’s
exponential growth. Reagan was no
better.

The bottom line:

We, as a nation, are on track for a
major financial disaster. Way-way worse
than we are experiencing right now. I
think you’d all agree that things are
very bad right now. Imagine it worse.
We’re headed there.

The German debt sale mentioned above
almost failed. They are the safest bonds
in the world by the CDS market’s
standards. I ask you this: what happens
when the US Treasury has a debt sale and
it fails?

Yesterday, out-of-the-blue comes the
most outlandish thing yet; the Federal
Reserve floated the idea of selling
their own debt to securitize their
ballooning balance sheet.

Seriously, I kid you not. This should
have been front page news.

Dr. Ben Bernanke, the Chairman of the
Federal Reserve, is leading us out of
what is described as the greatest
financial crisis since the great
depression. He’s the man and the man
just floated an idea that would take
confidence away from the US Dollar.
Massive confidence; the confidence of
the people who buy our debt. After all,
the dollars in your pocket are
backed-buy one thing and one thing only,
confidence. How dumb was that idea and
how confident are you that Dr Bernanke
can lead us out of an epidemic financial
crisis and not to a pandemic crisis? I
have none.

Let us say that our currency is CORN
and not the US Dollar. We grow the corn
around the USA and use it as currency
around the world. Let’s call it US
Treasury CORN and make it the world
reserve CORN currency. The Federal
Reserve CORN Board (FRCB) makes sure
that we have full employment and not too
much or to little CORN (call it CORN
inflation/deflation).

Suddenly, the US experiences an
economic crisis and confidence is shaky.
However, the leader of the FRCB has a
doctorate in finance and completed his
thesis on the previous biggest economic
melt-down since the country was founded.
He creates a zillion alphabet agencies
to buy up bad US Treasury CORN loans,
nationalizes the CORN-banking system and
really tries to make things better (keep
confidence in the US CORN high).

He states that the only way out is to
grow more US Treasury CORN.
People in the US and the buyers of CORN
(our debt) know things will get bad but
they all keep the faith. Heck, he’s got
a PhD in CORN economics.

Then, out of nowhere, he decides to
grow his own CORN and compete with the
US Treasury CORN. He wants to plant his
own CORN and call it the US FEDERAL
RESERVE CORN CURRENCY, thereby
increasing the CORN crop and diluting
the US CORN currency as a whole. The
buyers of US Treasury CORN currency
begin to hold back purchases because
there’s so much of it. Plus, they begin
to notice that they have their own CORN
and that CORN really needs
investment…but not with your CORN.

Guess what? We need people to buy US
Treasury CORN. We need them to buy it
until we can produce more CORN than we
spend. Currently we are years always
from doing that. To keep us afloat
economically, we must sell CORN. Not US
FEDERAL RESERVE CORN. We need to sell US
Treasury CORN. What Dr. Bernanke did was
moronic. Only time will tell just how
moronic the move was.

So, where do we put out money? Will
the treasury return our money when an
auction fails? Can they pay the interest
on the outstanding debt of 10t?

The definition of the US actually
being bankrupt is when we can’t pay the
interest on the outstanding debt. If we
fail to sell our treasury bonds we are
bankrupt. That will cause a
flight-to-safety away from all-things US
DOLLAR. And, a flight-to-quality to
Swiss francs, Euros, Yen, Commodities,
Gold.

I wish I had the answer to the
question, ‘what happens when the world
reserve currency collapses?’

There's a great article,
written by "Michael Dueker
[who] is a senior portfolio
strategist at Russell
Investments and formerly was
an assistant vice president
in the Research Department
at the Federal Reserve Bank
of St. Louis." The article
is posted on
econobrowser.com, http://www.econbrowser.com/archives/2008/12/predicting_the_1.html.

I'll simply post a chart
from the article because it
says it all. I like to pay
attention to forecasters
that have forecasted things
in the past that have come
to fruition. Furthermore, Mr
Dueker uses out-of-sample (OOS)
forecasting methods. In the
trading industry, when we
test trading systems they
are tested against OOS data.
If they aren't, they're no
good. OOS shows the sign of
a responsible forecaster.
Something this world is
desperately in need of.

I've written about the
abandonment of the US Dollar
and it's conversion into the
AMERO (the North American
Monetary Union), before.

It's an idea that isn't
radical when you consider
the Dollar is only worth 4
cents of it's original 1913
value. At 1-cent it would
have to be abandon. Believe
me, many smart people know
that abandoning it would
solve all our debt problems
because our debt wouldn't
exist anymore. However, it's
not that simple.

The Central Banking
system is not going away.
They're to big, and too
powerful. But dealing with
massive deflation is the one
thing a Central Bank can't
deal with. So....is it time
to switch currencies
or...devalue it? Or, hyper
inflate it? What is the
answer?

Here's an article about
what might be our future.
It's brilliant. It explains
so many questions Iike the
ones above. I mean, really,
how do you abandon 11
trillion dollars of debt and
not invite an invasion by
your biggest debt holder?

One of the hallmarks of a
Winter crisis is repatriation. From
an economic perspective this means that
countries begin to lend less to other
countries and in some cases they stop
all together. Why would this be bad? To
finance our national debt we sell US
Treasuries to other nations. Forget
about the stock market, it’s simply a
psychological barometer. The true
measure of financial stability is having
the ability sell treasury bonds/notes.
If that system falters, everything
falters. The treasury market is where
I’ve been for the last 28 years. We have
not seen any cracks in the system.
That’s the good news. (How’s that
Mark!?)

What have I been seeing concerning
repatriation? Some countries are
starting to repatriate or showing sign
that they will begin. The first sign is
a strengthening of the US Dollar. That’s
good in the short-run, but terrible long
term.

Brits have been the biggest
buyers of US Debt the last two
year, mainly because of the
rising value of the British
Pound relative to the US Dollar.
Over the last few months the
pound/dollar has crashed.
Therefore, the Brits won’t be
buying treasuries like they
were.

The Brits own 1.1 trillion
in our debt.

The point is that when things get
difficult countries tend to help
themselves, not others. They
‘repatriate’.

What could those countries do with
our debt? There are really two choices,
buy more, or, sell what they have. If
they sell, that’s not good. However,
there’s a third alternative and that’s
do nothing at all which is bad too.
Because, we need to roll our debt over…a
lot.

Here’s a picture of what needs to be
rolled over.

Let’s just look at the biggest blue
line. Its 1.7 trillion dollars in debt.
That debt will come due next year and
all has to be resold (rolled over).
That’s on top of the 1 trillion dollar
projected deficit, for 2009. We, as a
country will have to sell debt (T-bills,
T-notes, bonds) to make up that deficit.
That’s 2.7 Trillion in debt that we must
issue to stay a viable economy, in 2009.
Repatriation of money doesn’t work well
with the kind of debt issuance we need
to sell, in 2009.

The issuance is done in the form of
Treasury Auctions. There are many of
them now. All kinds of maturities and
coupons. In the chart above you can see
the total number of issues: 251. All of
them must be rolled over.

Let’s see another problem with debt
and rolling it over and how repatriation
comes into play. European firms have 586
b in debt they need to sell through
2011. And, 40% of it will come due next
year. These are corporations who do the
same thing as the US Treasury. They sell
debt, then, try to roll it over again
and again. That’s why Bear Stearns went
under; they could no longer sell their
overnight debt. Most of the Euro debt is
in telecommunications, utilities, and
healthcare. Plus the famous ‘Other’
category.

What’s most likely going to happen,
with that debt, is that they sell it at
higher costs and earn less money.
Moreover, the governments that these
countries are incorporated in will be
pressured to buy those companies stocks
or bonds (bail-outs). The point being,
they’ll spend less on US Debt. That’s
repatriation.

When the cracks get wider in the debt
market, I’ll let you know.

Paulson

Secretary Paulson made a major
mistake yesterday that will most likely
send stocks down into year end. Things
were at least looking up before
yesterday, he put the kibosh on any kind
of sustained rally.

The reason that investors liked the
700b bail-out was because the US
Treasury was creating a ‘fence’ if you
will, around the toxic mortgage assets.
Yesterday, Paulson took the fence down.
Forget about where he’s refocusing. That
doesn’t matter because all trust in
Paulson has been lost. Furthermore, he’s
yet to have put an Inspector General in
charge of the plan and is overdue with
his reports to Congress, by a month.
Both are in the original agreement and
he is now in violation of both. Congress
is mad, so are the people in the US.

The stock market can’t withstand that
flip-flop. It went down 400 points
yesterday and can’t hold a 200 point
gain today; as I write it’s down 65.
Remember, the DOW is America’s psyche.

Sorry for all the bad news. However,
that’s what’s going on at the moment.

Things aren’t getting better. There’s nothing good
happening in any of the economic numbers. For instance,
unemployment. We’ve moved very quickly from 4.4% low at the
end of 2007 to last months high of 6.5%. That’s and
astronomical amount of jobs lost in such a short period of
time.

Most economists are
stating that unemployment will rise to 8% by April 2009.
When 9/11 occurred, we all understood there’d be job losses.
There was a reason for the upturn in unemployment. We knew
we’d heal and get those jobs back. This time around many of
us can’t see a reason for the uptick in job losses except
for moronic bank lending. That fact makes things much worse.
Much more difficult to swallow.

What else do we have…

GM has enough money until March 2009. They’re
burning about 2b a month.

Ford has enough until April

There’s 2.5 million jobs tied to the car industry.

If GM is allowed to fail they’ll cut half their work
force.

Here’s the kicker, if they survive with a loan,
they’ll cut a third of their work force. Remember, when
Chrysler got their 1b loan in the mid ‘80s? They cut a
1/3 of their work force. What if the DEMS make it
explicit, in the loan, that GM/FORD can’t cut jobs?
That’s simply stupid. This country did the same thing in
the 1930s. Hoover called all the big industry heads to
the White House and told them to not cut wages. Then,
told them not to cut jobs. That action simply prolonged
the inevitable and made the depression worse. Bottom
line? It’s a disaster waiting to happen no matter how
you slice it.

Every time the auto industry cuts a job someone
else’s will lose theirs.

The US was able to recovery from cuts like this
before because of the tech industry. That’s doesn’t hold
true anymore. The tech industry is cutting jobs, not
hiring.

2.3 Million People have lost their jobs in the last
12 months.

Banks

Banks aren’t lending the money they’ve been given from
the Bailout. So far there’s been 290 billion of the 700 b
bailout given. The first installment of the 700 b was 350 b.
There’s only 60 billion left of that 350 b. The next 350 b
will not come until the next administration. If it does come
before then, I really do not think it matters due the way
they’ve spent the first 350 b. We, as a country, have zero
confidence in Congress.

The following illustration shows where most of the money
went, from the 350 b. The top 4 recipients have taken the
money and stored it away. Pretty much lending it back to the
fed at a rate of 1%. That’s a lot better than what they were
getting which was heavy losses.

What were the banks gifts to you and me? An increase in
fees. Big increases. It was a lead story in the WSJ today. I
also know because my wife and I got hit with these increases
from CITIBANK.

And lets not forget yesterday’s stunning news:
American Express, whom isn’t in trouble at all, decided it
wanted to be a bank, so they can get some of the TARP money.
Presto chango! As of today, they’re a bank and will get 3
Billion of our money.

By the way, if you subscribe to the DR’s RSS (or any RSS)
and use Google reader, Google reader stores all the articles
in one place so you can read them at leisure. That way
you’re not clicking around his site. Blogs are notoriously
un-navigate able. I love Google reader.

Back to the point. The bailout was not about us. One of
the things they were trying to accomplish with the 700b
bailout was to slow the crash down. They knew (or they’re
really really stupid) that the crash was inevitable, but it
was coming too fast. It worked. However, now we get to feel
the pain very slowly.

Again we only need to see the action of the government
and the banks to understand if WE are being helped (money
into the hands of the many) or the elite are being helped
(money into the hands of the few). Congress ended their last
session with the biggest give away in the history of the
country per capita, to big business. However, when it came
time to vote for the extension of unemployment claims it was
shot down. It didn’t even make it to a vote. Approximately 1
Million people were/will be affected before year-end because
of that no-vote. Again, what were their actions? Forget the
rhetoric.

________________________________

Let’s look at something we can use.

Here’s a snippet from the last unemployment data.

The only sectors that added jobs are highlighted below.

ESTABLISHMENT DATA Employment

Nonfarm employment.......| -240

Goods-producing (1)....| -132

Construction ........| -49

Manufacturing .......| -90

Service-providing (1)..| -108

Retail trade (2)...| -38

Professional and |

business services .| -45

Education and health |

services ..........| 21

Leisure and |

hospitality .......| -16

Government ..........| 23

Interesting. There’s a tool here. What I see, looking at
these numbers, is most certainly a sick economy. However, if
we’re to survive, then, we have to look at where jobs are
being added and where jobs are being cut the least.
For example, if you are someone who sells your services to
small businesses then you might want to know what sector is
doing well and what sector isn’t.

Moreover, we should ask, what industries are the Obama
administration going to cater too? Look at the last post I
did. Look the stock recommendations. What industries are
those stocks in? What industries are NOT being recommended?
You can use that information no matter what business you’re
in.

For instance, if I’m a small business consultant, say
accounting, in Elmhurst, IL, I can go to city-data.com and
plug in the zip, 60126. There I can see all the information
for that zip code. And, I mean everything. They don’t miss a
thing.

There’s a category titled “Top industries in this zip
code by the number of employees in 2005”

The listing is three years lagging but the info should be
pretty close to todays. Should you be soliciting in this
area?

There’s a big duh! This is a great area to solicit for an
industry that isn’t going-down as rapidly as the rest of the
economy.

What if you’re a financial consultant? What zip codes
should you search in? The ones that have the industries that
aren’t tanking. Or…tanking less.

Gotta go, take care,

Jim Goulding

11/12/2008

PS. the following hit my mail box a few minutes after i
posted. It speaks to what they are saying and what they are
doing:

OCC Responds on Credit Card Proposal

WASHINGTON — "The Office of the Comptroller of the
Currency responded today to a request that it approve a new
workout program for troubled credit card borrowers. In its
response, the agency noted that while the OCC strongly
encourages national banks to work with distressed borrowers,
the agency cannot approve a plan that defers the timely
recognition of losses, since that would compromise the
transparency and integrity of a bank’s financial reports and
could lead to a loss of public confidence in the banking
system."

_____

Yes there are irresponsible borrowers, we know that. But
the money we are talking about is fractional compared to the
what the banks have sucked us dry for...over 1.5 trillion.
What were many consumers putting on those credit cards? With
the US dollar worth 20% less than it was in the year 2000
and wages lower than they were in that year, many of them
were putting on the basics. Very sad.

He mentions trends
towards less free markets, bigger government, higher taxes,
more regulation, rising influence of trade unions, intrusive
government and protectionism. So, any stocks that lean that
way will be beneficial. (On a side note, Strauss and Howe,
in their 1997 book, The Fourth Turning,
predicted everything that Gartman mentioned.)

Watch for an economic
summit to be convened immediately. There, Obama will call
for proposals on the economic issues facing us today.

Traditions
don’t hold this time around, like, Republicans’ are
bullish stocks and Dems' are bearish stocks.

[ From the WSJ. I
highlighted
buys in blue and
sells in red.]

Caterpillar, WellPoint
May Win, Delta, Pfizer Lose Under Obama

2008-11-05
04:13:00.250 GMT, By Lorraine Woellert

Nov. 5
(Bloomberg) --Health insurers
UnitedHealth Group Inc. and WellPoint Inc. may be
winners in the Barack Obama administration. Drugmaker
Pfizer Inc. may not be.

The
president-elect's pledge to spend on roads and bridges
probably will help
Caterpillar Inc.,
and delivering on his promise to ``fast track'' money to
automakers would come none too soon for
General Motors Corp. and Ford Motor Co.

Delta Air Lines Co. and other airlines may face
higher labor costs, and new regulations may rein in Internet
service providers such as
Comcast Corp.A drop in oil prices may let
Exxon Mobil Corp. escape a windfall profits tax,
at least in the early months of Obama's presidency.

Nuclear Waste

·The
president-elect has expressed concerns about nuclear waste,

Roads and Bridges

·Obama
may put spending on roads and bridges near the top of his
economic agenda.

Infrastructure Bank

·Obama in
February proposed a so-called infrastructure bank,
supplementing the highway fund, to invest $60 billion over
10 years.

Defense

·U.S.
defense companies including
Lockheed Martin Corp. and Northrop Grumman Corp. have
benefited from a 70 percent increase in defense spending
since 2000 because of war costs and expenditures on new
weapons. They expect the trend to continue under Obama.

Shipbuilding (Defense)

·In
addition, U.S. military shipbuilding ``is on a course that's
not to be changed,'' Nicholas Chabraja, chief executive
officer of
General Dynamics Corp., said on an Oct. 22 conference
call. ``You're going to have a Democratic Congress no matter
which party occupies Pennsylvania Avenue, and that Congress
is dead set on improving the number of ships in the fleet.''

Media Companies

·Obama
has sought to reverse last year's FCC ruling that makes it
easier for companies such as
Gannett Co. and Tribune Co. to own daily newspapers
and nearby TV and radio stations in the 20 largest U.S.
markets. A resolution co-sponsored by Obama and 26 other
senators failed to clear Congress.

Antitrust Enforcement

·Obama
``strongly supports'' the principle of network neutrality,
according to a policy statement posted on his Web site. He
has said letting Internet providers, including cable
companies such as
Comcast Corp., charge fees that give some Web sites
or applications priority over others ``would threaten
innovation, the open tradition and architecture of the
Internet, and competition.''

·Obama
also promises to ``reinvigorate'' antitrust enforcement. In
contrast to the Bush administration, an Obama presidency
would view media mergers ``very skeptically,'' Gigi Sohn,
president of Public Knowledge, a Washington-based public
interest group, said in an interview.

·Obama
pledged to make the research and development tax credit
permanent and said he will double budgets for scientific
research over the next decade. “The most important issue
that needs to be addressed, and has unfortunately been
neglected for a very long time, is the funding of research
in the physical sciences,'' said George Scalise, president
of the Semiconductor Industry Association in San Jose,
California, whose members include
Intel Corp. and
Advanced Micro Devices Inc. ``We would like to see
that be the No. 1 priority.''

Regulating the Web

·On
the Internet, Obama backs ``network-neutrality'' rules,
which would prevent Web operators from giving preferential
treatment to some companies' content and services.

·
Companies opposed to net neutrality, such as
AT&T Inc. and
Verizon Communications Inc., would have benefited
from a McCain administration, Paul Glenchur, an analyst with
the Stanford Group Co. in Washington, said in a Bloomberg
Television interview.

·
`Regulating the Internet has really horrendous
implications,''
Sprint Nextel Corp. Chief Executive Officer Dan Hesse
said after a speech in Washington on Oct. 24. Sprint, based
in Overland Park, Kansas, is the third-biggest U.S. wireless
carrier. ``Probably the thing that scares the industry the
most about a Democratic administration is regulating the one
real shining star that's really working really well, and
that's the Internet.''

·
Consolidation in the telecommunications industry will also
probably slow under an Obama administration, Glenchur said.

Nov. 5
(Bloomberg) -- Democrats in Congress plan to use their
election gains to push for an economic stimulus measure,
expanded health-care for children and funding for stem-cell
research -- and then follow President-elect Barack Obama's
lead.

....
Democratic leaders in both chambers plan to curb troop
levels in Iraq, while making clear that they will
first test their increased power on domestic issues.

....
The party also will move to add 4 million children to a U.S.
health-care program and to approve legislation
allowing federal funding of embryonic stem-cell research.

....
Congressional leaders will act on middle-class and small-
business tax cuts, while allowing the Obama
administration to take the lead on the timing, Hoyer said.

....Even
as they failed to win enough seats to get the full 60 seats,
Democrats are still likely to have a broad impact on policy
with the help of just a few moderate Republicans,
such as Susan Collins and Olympia Snowe of Maine.

....On financial services, Democrats vow a broad rewrite
of the rules governing banking and investment firms
following the collapse of the mortgage market. ``I think
they're going to make a major effort to streamline oversight
of the financial services industry -- banks, savings, and
loans, credit unions, thrifts, insurance companies,'' said
Ethan Siegal, president of the Washington Exchange, which
tracks Washington policy for institutional investors.
Meanwhile, analysts said some of the Democrat-backed ideas
that failed to make it into this year's $700 billion
financial bailout legislation are likely to be revived. That
includes a measure that lets judges modify mortgages in
bankruptcy court to save homeowners from foreclosure, and
``say on pay'' legislation that would give shareholders a
proxy vote on executive pay.

....The slowing economy is likely to push some bigger-ticket
issues into 2010, according to analysts and
congressional aides. An overhaul of health-care policy
to curb the number of uninsured is unlikely to occur in
2009, as is climate-change legislation designed to cut
so-called ``greenhouse gas'' emissions.

....
A plan to boost taxes on managers of hedge funds and
private-equity firms could re-emerge, analysts said.
“It's a $25 billion money-raiser,'' said Anne Mathias,
director of policy research at the Stanford Group in
Washington.

They seem
to be the easiest to deal with. You can buy as little as a
gram. My take is that you buy X amount and that entitles you
to a certificate that shows you own X amount and it’s
deposited in X location with all the other ‘owners’.

If you want
the acutal bullion (taking physical delivery) you pay a
shipping and stamping fee. I encourage you to read the FAQ
before you buy.

Q:Do I get a
certificate or something saying I own 6 contracts worth of
gold? Or, does my account just show I own 6 contracts of
gold just like I would own 100 shares of a mutual fund. How
does that work exactly? I mean, if I just get a certificate
or something, where does the gold actually reside? It is a
claim on an amount of gold held somewhere in the world?

A: I think
I answered most of thes questions above and what I didn’t
you can find on Kitco’s site. From what I understand they
are well trusted and highly regarded, for whatever that’s
worth these-days.

Q:What is the name of
the contract I would buy. I'm not looking to own any
futures, just the real gold contact. Say like owning an
actual US Treasury note cash contract. Not the futures
contract.

A: Owning a
real treasury note contract would not really be a good thing
nor would the gold futures contract. They all have carrying
costs. For instance the margin. So, I don’t think this is a
great idea. Although you could own one mini-futures on NYMEX
and take delivery which is 50 ounces. The delivery would
take place to a vault somewhere in the US. Then you’d pay
storage fees. You’d have to delivery the cash to nymex,of,
50 times purchase price. So, if you bough one contract of
gold at 700 you’d deliver 50*$700=$35,000. See www.nymex.com.

The biggest
issue for owning gold right now is that people see a price
on the TV or a newspaper of where gold closed that day and
expect to get that price or slightly above that price.
That’s not the way it works. For instance I’m staring at
unleaded gasoline futures right now and they’re trading 1.53
a gallon. Add in the assorted taxes, say, 50 cents, and the
gas price at your corner gas station should be 1.53+.50 =
2.03. However, we all know it’s not. That’s because there’s
a huge opaque type market inbetween the futures contract and
the actual cash delivery markets.

For gold,
everyone wants it now. Well, not everyone, but enough people
woke up to the fact that gold is and will be a valuable
commodity in this crash. So, buying physical gold is hard.
Dealers know that you want it and they are charging you
more. Call it gouging call it supply and demand...whatever.
It is what it is.

If you want
to buy an ounce of silver now, expect to pay double the
price you see in the futures markets.

Anyone have
any resources, they’d be greatly appreciatted. Opinons too.

Take care,

Jim
Goulding

Thursday,
October 23, 2008

10-21-2008:
Two great web sites

Here's two very valuable links. The
first, you can look at deliquency rates
for bank credt cards and mortgages to
the county level. Drilling down to your
county gives you a great snap-shot of
the financial health of your county. I'm
of the belief that focusing locally on
your state, country, town is the way to
go in a Fourth Turning.

Here's the link to that site, with a
brief explanation.

"The
Federal Reserve Bank of New York
announced on Tuesday the availability of
dynamic maps and data that show the rate
of bank credit card delinquencies and
mortgage delinquencies by county across
the United States during the first
quarter of 2008. These new measures
complement the nonprime mortgage
information released periodically since
last March by providing a more
comprehensive view of regional credit
conditions."
http://data.newyorkfed.org/creditconditionsmap/

Who is going to get us
out of the current economic (and forthcoming) problem? The
Millennial Generation will. Here’s the theory: From
1433-2003, Strauss & Howe categorized all the generations
and found a cycle. The cycle is that we repeat the same
types (archetype) of generations every 80 or so years.

Example:

The Millennial
generation was b1982-2003. Their archetype is Hero/Civic.

The GI generation was
b1901-1924. Their archetype is Hero/Civic.

The same.

Here’s a picture of
all the generations S&H categorized. I’ve colored the
similar ones the same color. Do you see the cycle?

The yellow generations
are the ones who pull us out of the crap that the orange
generations get us into. How do we know that the millennial
generation turned out to be a Hero/Civic archetype? Because
most everything S&H predicted about them in their 1991,
1997, and 2000 books came true. How did they know that?

Here is another cycle
in pictures. It’s called the Line-Up. Every time the 4
generations line up in the same age location, all hell
breaks loose.

I’ll give you two
examples. Here’s the American Revolution:

Revolutionary Cycle

[note: In the
beginning of this cycle, the
reactive-nomad generation took up all of the midlife
and elderhood age location. This was the
Cavalier generation, b1618-1647.
The
Puritan generation (b1588-1617)
had mostly died off by the time 1704 came around.]

Revolutionary Cycle

1704 (1st T)

1727 (2nd T)

1746 (3rd T)

1773 (4th T)

Elderhood 63-83

Reactive-Nomad

Reactive-Nomad

Civic-Hero

Adaptive-Artist

Midlife 42-62

Reactive-Nomad

Civic-Hero

Adaptive-Artist

Idealist-Prophet

Rising Adult 21-41

Civic-Hero

Adaptive-Artist

Idealist-Prophet

Reactive-Nomad

Youth 0-20

Adaptive-Artist

Idealist-Prophet

Reactive-Nomad

Civic-Hero

Look at the far right
box, on the top. It says “1773 (4th T)” [4th
T stands for Fourth Turning]. See how the colors go down
from purple, orange, blue, and yellow in that row? Keep that
in mind.

The next cycle is the
“Crisis Era/Winter/Fourth Turning” before the revolutionary
war.

Colonial Cycle (Summer
Cycle)

[note: In the
beginning of this cycle, the
reactive-nomad generation took up all of the midlife
and elderhood age location. This was the
Reprisal generation, b1512-1540.]

Colonial
Cycle

1594 (1st
T)

1621 (2nd
T)

1649 (3rd
T)

1675 (4th
T)

Elderhood
63-83

Reactive-Nomad

Reactive-Nomad

Civic-Hero

Adaptive-Artist

Midlife
42-62

Reactive-Nomad

Civic-Hero

Adaptive-Artist

Idealist-Prophet

Rising
Adult 21-41

Civic-Hero

Adaptive-Artist

Idealist-Prophet

Reactive-Nomad

Youth
0-20

Adaptive-Artist

Idealist-Prophet

Reactive-Nomad

Civic-Hero

Again, look at the far
right box on the top and look at the colors going down that
row. They’re exactly the same as the Revolutionary War. The
Crisis Era in 1675 was the Glorious Revolution.

Next let’s take a look
at how things look today.

Here’s a picture of
the current cycle.

The Millennial Cycle
(Summer Cycle)

Cycle = Millennial

1946 (1st T)

1964 (2nd T)

1984 (3rd T)

2009?(4th T)

Elderhood 63-83

Missionary (64-86)

Lost (63-81)

GI (60-83)

Silent (67-84)

Midlife 42-62

Lost (46-63)

GI (40-63)

Silent (42-59)

Boom (49-66 )

Rising Adult 21-41

GI (22-45)

Silent (22-39)

Boom (24-41)

Gen-X (28-48 )

Youth 0-20

Silent (4-21)

Boom (4-21)

Gen-X ( 3-23 )

Millennials (6?- 27)

Look the top right
hand corner again. Oops. Same thing. We are repeating the
same thing over and over. Every time line up like we are
today, the crap hits the fan. I created the graphs above in
2003.

Let’s take a look at
what S&H say about the Millennials (Mills) in their 2000
book Millennials Rising. (Ralph this is a must
for you because they’re your audience! However, your
audience is a changing. The new generation looks like the
Homeland Babies. I think they began being born in 2004. They
are similar to the Silent Generation, therefore, they’ll be
even better behaved than the Mills socially.)

“When today’s teens
and kids come fully of age, assuming they follow history’s
usual generational rhythms, they will solve problems Gen-Xers
couldn’t by fashioning a new sense of community out of
‘90s-style individualism. They will correct what they will
perceive to be the mistakes (and compensate for the flaws)
of Boomers, by placing positivism over negativism, trust
over cynicism, science over spiritualism, team over self,
duties over rights, honor over feeling, action over words.
In doing so they will fill the role vacated by the G.I.s.”

That paragraph is a
template to the future. It tells you exactly how the Mills
will behave. And that behavior will be the opposite of what
we are used to.

Let’s go back the
Millennials Rising and see what else they have to say
about the Mills.

“The decade is the oh-ohs.
The generation is the Millennials. When the two come
together, the young people of America will dazzle the nation
much as the Boomers did in the ‘60s, though to very
different effect.

“…Few American have
ever seen so many young people with such an appetite for
achievement. Indeed, older generations are so accustomed to
worrying about kids who accomplish too little that they
might not know what to do with the kids who accomplish too
much.

“….During the Great
Depression, older people felt increasingly powerless about
what they personally could do about the many problems of the
nation and the world, but increasingly hopeful about what
younger people might someday do.

“…Boomers and Gen Xers
realize that neither of their generations is likely to be
remembered as a generation of heroes. Perhaps, however, both
can someday be remembered as the leaders, educators, and
parents who shaped a generation of heroes.”

-end-

I jokingly call the
Mills the Teflon generation. Nothing seems to faze them. I
watch my nieces and nephews, and the young kids at work who
are completely separate from the same problems Xers and
Boomers have. They see the world very differently and have a
completely different set of problems. This is very
comforting to me. I’m sure it felt the same for the Lost
generation when they were seeing the young GIs, back in the
late ‘20s.

When we call the
Millennials to do something they will do it. They’ve been
training for it their entire collective lives. What that
something is, I don’t know. Hopefully it won’t be anything
similar to WWII. I don’t think it will. The intensity of
this cycle should be less severe than the prior Winter,
1929-1945. If you go to this web link you can see the work I
did on the intensity of the cycles,

The reason I believe these two docs are important is that
they steer us away from the idea that the current credit
crisis is similar to the 1930s. It’s not. The crash in the
30s was not a credit crisis. Ben Bernanke behaving like this
is the 1930s because he’s a scholar of the depression (he
wrote his dissertation on the 1930s). Bernanke is enacting a
ZIRP policy (Zero Interest Rate Policy). The opposite of the
1930s. Let’s just hope he realizes that back then the US
dollar was pegged to gold until sometime 1934. Un-pegging
the dollar was one of the prescription to get out of the
1930s mess. Today, it’s different. We aren’t pegged to
anything.

If you have a paper you’d like to link or upload that fits
the Template guide, post it here. All are welcome and I
guarantee all will be read.

I know I promised an
article on the Millennial Generation and how they were going
to save us (down the road). However, I haven’t been able to
keep up because the market and all the developing stories
are non-stop. I’ll try to get it written this weekend. I
wanted to give an update on the markets and what is
transpiring, before I left for the weekend.

The current problem is
a very old problem that’s existed since we started trading
money in the 11th century. That is, the people
with the money won’t lend it. If they do lend it the cost is
too high to borrow. There are a few indicators we can watch
to tell if they are lending again.

When these numbers go
lower, banks are lending again. That’s a good thing.

We are in a time of
revaluation and a major turning in the markets. Similar too
many eras in the past. This week was about two camps
beginning to take shape. The first is the camp that says we
are going into a major economic meltdown and we’re going to
crash further. The second camp says we will have a ‘Lost’
decade similar to Japan, in the 1990s followed by another
slow but growing decade like Japan, in the 00s.

In the short term (6
months) the markets want:

Details of the
bailout plan (810 billion plan recently passed)

Transparency in
the markets. No more ‘Over-the-Counter’ crap like the
Credit Default Swap market.

The Dow is going to
probably make one more low this year, taking out the 7800
level. We should see more ‘throwing in the towel’ by retail
traders (you and I) and hedge funds as they go belly-up. The
market may not take-out the 2002 low of around 7200 this
year. It may take a major catastrophe to do that before the
end of the year, like an earthquake in the US, or terrorist
attack here, etc. We will have huge rallies like we had
Monday (+983) that make everyone think things are ok again.
They’re not.

The more I’ve been
reading the more I’m convinced this is not going to be an
all-out deflationary recession/depression. Things are
pointing to an 1871/1873 economic problem and a mixture of
what Japan went through the last twenty years. I have more
to read before I can come to any conclusion.

I'm in awe of the rapid decline of this economy. It
wasn't supposed to happen this way. So...that must be where
the saying, "History doesn't repeat but it rhymes", comes
from. May I offer a generation-X saying that will put this
entire thing into perspective? "WHATEVER!" There, I said it.

Back to the drawing board as far as the DOW is concerned.
I really need to get some time to put two thoughts together.
I’ve spent the last 6-weeks reacting to everything in the
news. Allow me to explain.

That’s what we do on our trading floor. We react to news,
technical’s, whatever, and try and make money by taking
risks in the market and provide liquidity to others who need
to hedge their risk. I sit in front of 8 computer screens
taking in information from live markets like treasuries,
oil, S&Ps, and gold. Not graphs, those are on different
screens. These are live markets with the volume and prices
that you can trade on. Other screens carry two news
services, CNBC, instant messaging, email, and a
partridge…well you get the idea. This stuff runs all at once
and I must decide what’s important to release to the traders
that instant, or save it for later, should I send it by
email, IM, or just yell it out! It’s exhausting when the
markets are breaking down.

I’ll be able to get some thoughts together by the end of
the week and post…something.

The last post I made about taking some money out of the
ATM still stands. Things are winding down but it ain’t over
yet. I’ll try and post tomorrow.

Today the Fed meets. Today is a
tipping point. With the collapse of
Lehman and the imminent collapse of
AIG, it’s up to the FOMC to give us
some breathing room. That will come
in the form of a 50 basis point rate
cut in the overnight lending rate.

It the FOMC doesn’t cut rate by at
least 25 basis points, from 2.00 to
1.75 the stock market will keep
heading lower and jobs will
continued to be lost.

Here’s what Goldman Sachs had to say
about today: “If the committee does
decide to ease, a rate cut of 50
basis points (bp) is much more
likely than 25.”

If the fed cuts by 50 it will give
us some breathing room to sort out
the unwinding of Lehman and AIG
which hold a combined 1.6 Trillion
in assets.

Lastly, I can't tell you how big the
fall of AIG would be to the economy.
They are literally too big to fail.
They touch everyone in the US in
ways that I can't even begin to
describe.

I’ll try to post more over the next
few day but am trying to stay away
do to the high emotions in the
market (and me).

Once again I’m pointing you towards the
Credit Default Swap market (CDS). This
market is also called the ‘credit’
market or the ‘debt’ market. These are
two of the names you may hear this
market called.

This market knows long before the stock
market, that there is a problem. Below
are a couple of charts showing a simple
picture of the situation with Washington
Mutual (WM) and Lehman Brothers (LEH).

Here’s WaMu’s chart. It shows the ‘swap
curve’ from today, 1 week ago, and 3
months ago. We will look at the 5 yr
Term at about the middle of the chart.
The orange dot is approximately at 400,
the blue line is about 1400 and the red
line 2250. What this tells us is the
cost to insure the bonds Washington
Mutual has sold to its inventors is
skyrocketing.

The numbers mean the following: It costs
approximately 2.2 million to insure 10
million in WM bonds a year for the next
five years. One-week ago, the cost was
1.4 million, and three-months ago it was
400,000. The move is astronomical. The
credit market is screaming at investors
to get out.

Let’s look at Lehman Brothers CDS’.
Again, we’ll look at the 5yr Term.
One-week ago it cost about 375,000 a
year for 5-years on 10 million in bonds.
Today, it costs just about 577,000. The
price to insure LEH bonds has gone up
64% in a week.

You can list Credit Default Swaps out by
sector. For instance I have a sheet of
paper in front of me that shows the
yearly cost, over 5-years to insure 10
million of the bonds of:

Lehman – 577,000 a year for 5 years

Merrill – 330,000

Morgan Stanley – 220,000

Goldman – 175,000

Citigroup – 174,000

JP
Morgan – 126,000

Credit Suisse – 82,000

This helps because it creates a frame of
reference for you. It also tells us who
might be next on the list to have
problems. That would be Merrill.

I can’t stress the
magnitude of what the nationalization of Freddie and Fannie
mean to our economy. What just happened to our national debt
is unprecedented. Basically our liability as citizens of the
United States just doubled.

You and I are on the
hook for 4.5 trillion in debt that was already on the
government books in the form of the national deficit.
Freddie and Fannie’s combined debt is 5.2 trillion. And…no
one is saying anything about this in the main-stream-media (MSM).
Don’t expect to see anything soon either. We are officially
in the economy of “there isn’t a problem until there is one”
(thanks Dr. Housing Bubble).

That’s one reason why
this board is here. It’s here because you won’t find the bad
economic news that will affect us in the MSM.

There are many
regional banks that own Freddie and Fannie stock. That stock
is now worth nothing. Those banks have to raise capital to
cover their losses or go-under.

The point is,
investors are losing faith and faith is what our economy is
built on. Faith is what our currency is built on. Faith is
what sold our debt securities to China, Japan, the UK, and
countless other countries over the last 20 years.

The nationalization of
Freddie and Fannie Mae is not something that is positive for
the economy, as the press would have you believe. It is a
warning that all the debt is being pushed on the people of
the US and they can only handle so much debt before it
implodes.

Thank you,

Jim Goulding

September 10, 2008

PS, Washington Mutual
is getting killed in the market today. I wouldn’t have a
penny in that bank. They have too much in Options Arm
Mortgages (52 billion) that will never get paid.

We talked at our morning meeting today, at work, about
the fact that the retail sellers hadn't really entered the
market in droves. The DOW was at around 9200/9300 before the
open. We thought that if they wacked it again today as they
did, retail sellers would begin to take notice. Retail
sellers are Joe-average (you and I). They'll get home from
work tonight and see the DOW closed on it's low, 1000 points
lower than yesterday. They will begin to call their brokers
and tell them to sell...with much anger in their voices.

This is a classic set up. Lower lows bring....lower lows.
We got some of that today. Sure, there were many retail
sellers in today getting out of the market. The
short-sellers were back too. However, as I've stated before,
short seller help the market in many ways. As they come back
and begin to trade again, they'll actually cause big rallies
in the market. They're aren't fully back in though. But,
we'll begin to get bigger bounces (prices going up) on the
breaks (prices going down).

Tomorrow is a shortened day and the volume will be thin.
We could easily drop 1500 points. The target right now, that
everyone on the street (trader's in the industry) are
looking at are the 2002 lows of 7100+. Any rise in prices is
going to meet massive selling because so many people want
out.

Look for the FED to guarantee interbank lending.That's the one-trick this thing needs. If they do
that, we'll rally back to 10,000. Really.

HS Dent has a simple theory. He believes that consumer
spending rules all. I agree. I’ve been studying Dent for a
decade. He’s the economist that introduced me to Strauss and
Howe (S&H). Many of you know I believe S&H theories more
than any other. My book, Winter is Coming,
covers their theories and some of my own interpretations of
their theories. My generation's
page, on my web
site, goes into great detail about “S&H’s” theories, in
pictures.

However, today I’m writing about consumer spending and HS
Dent’s theories. Dent says we spend money in an easily
tracked way, throughout our life time. Two large benchmarks
are 26 and 46 yrs old. We buy our first home at 26 and trade
up when we are 46. I used these two benchmarks to complete a
housing study
in 2002. That study correctly predicted the downturn in the
housing market. So, Dent’s theory is solid. (I used a 43
year lag in that study. A full explanation why is included
in the study).

Dent’s theories also have a downside as many theories do.
He’s missed market calls. So have I.

Personally, I don’t like his short-term calls because he
always gives three scenarios, Up, down, or sideways,
with one of them the most likely scenario. However, if you
stay on top of him, his calls are ok. He’s a good economist
when all is taken into account.

If we look at his peak spending theory and chart it against
the Dow Jones Industrial Average (DJIA or Dow) adjusted for
inflation, it speaks volumes for the end of an era. Here’s
the chart with an explanation to follow.

The chart shows two
series. The first is Immigration + Births. The second is the
Dow.

Regarding the first
series: The series is a proxy for consumer spending. The
formula is live births + immigration with both lagged to
project spending over a lifetime.

Average immigration is
about 30 yrs of age. Now I just have to line up the data, in
excel, and lag the births and immigration.

That’s the age Dent
states that we hit peak spending, in our lifetime. Then we
begin to slow our spending habits. The numbers on the right
side of the chart above are for the Dow. I can’t stress
enough that it really doesn’t matter what the scale is on
the right side for the Dow. For instance, Dent has a classic
chart that shows population + immigration vs. the Dow
adjusted for inflation (with a log scale for the Dow).

Here it is:

That’s where I got the
idea for the chart I produced. Dent used his chart to
project Dow 35,000. And you were wondering where I came up
with my prediction of Dow 35k!? Now you know. There were
some other factors as well, but I liked his particular
theory the most.

The numbers (scale) on the right of Dent’s chart are
different than the chart I produced above. However, the
shapes of the curves are the same and that’s what’s
important! Here’s my chart again:

The only difference between
Dent’s chart and my chart is the Dow scale on the right-side
of the chart. I am not using a log scale. However, I could,
easily insert one as I’ve done below:

And if I used a log scale on
the population too, it would look like the following:

Like I wrote
above, it doesn’t matter what the scales are; the shape of
the curves are what we want to look at. The curves follow
each other so-well I don’t have to run a regression analysis
(causation of correlation or R2). I can tell by
looking at the chart that consumer spending and the price of
the Dow are correlated with causation.

What strikes
me as extremely prominent is the peak of consumer spending
(the pink line). That peak is marked on the chart in 2008.
Kind of right-in-line with the American consumer spending
less and less, at this moment in time (today is 9/3/2008).

So, what does
this mean? It brings up the question, “should I sell the
Dow?”

Things are not getting
better they are getting worse. The amount of money that will
be needed by the FDIC, the corporate world, Freddie Mac, and
Fannie Mae (the GSEs) is staggering. If we simply look at
the GSEs and their increase in borrowing costs over the next
5-weeks, it takes your breath away.

Below, I’ve posted an
article from Bloomberg, written on 08/20/2008. However, I’ll
briefly post a quote from another Bloomberg article written
yesterday about the corporate market.

“Banks, securities firms and
lenders have a record $871 billion of bonds maturing through
2009, according to JPMorgan Chase & Co., just as yields are
at their most punitive compared with Treasuries. The
increase in yields may cost them as much as $23 billion more
in annual interest versus a year ago based on Merrill Lynch
index data.” [end]

The rollover of the debt
isn’t anything new. It’s the cost of the debt that is new.
Things aren’t hitting bottom folks, they’re still going
down.

The information released by
the FDIC on 08/26/2008 was not good. 117 banks are now on
their watch list compared to 90, in March. I've uploaded
their PowerPoint presentation for you to look at.

Here are some
highlights from an article off of Bloomberg, posted today,
August 25th, 2008. It highlights what the credit markets are
going to be paying to finance positions at the end of
2008. In the financial industry we look to these numbers to
see how the credit market is doing. Meaning, are the banks
outside the US lending to each other, via the LIBOR rate?
Our benchmark for the end of 2008 is the end of 2007 because
the lending levels got very high last year. Before that, the
benchmark was Y2K or December, 1999. Read on

_________________

``These problems
going into year-end are likely to be worse this time round
because of the amount banks have to refinance in December,''
Thomson said, citing a figure of $88 billion. ``The
suspicion is that banks are still hiding losses. The banking
system relies on trust and at the minute there quite simply
isn't any.''

Rate Spreads

Banks are
charging each other a premium of 77 basis points over what
traders predict the Federal Reserve's daily effective
federal funds rate will average over the next three months
to lend cash. The spread is up from about 24 basis points in
January, and may widen to 85 basis points, or 0.85
percentage point, by mid-December, prices in the forwards
market show.

Former Fed
Chairman Alan Greenspan said in June that this spread, which
is the difference between the three-month London interbank
offered rate for dollars and the overnight indexed swap
rate, should serve as a measure for telling when markets
have returned to normal.

A narrowing to 25
basis points in the so-called Libor-OIS spread would be
viewed as a positive, he said. Forward markets signal that
won't happen until sometime after June 2010. The premium
averaged 11 basis points, or 0.11 percentage point, in the
10 years prior to August 2007.

Below, is graph of the
spread they are talking about above in the Bloomberg
article. The right-hand scale is in percentage. The 3 month
LIBOR is trading 2.810 and the 3 month OIS is trading 2.035.
The difference between the spread, today, is 77.5 basis
points (2.81-2.035 = 77.5). The 3-month LIBOR is the rate
which banks charge each other to borrow money for three
months. The higher it goes the more expensive it is for a
bank to borrow money.

OIS stands for Overnight
Index Swap. The OIS is what banks are charging
each other in the US to borrow money. What’s the difference
between the two rate? Why is one higher than the other? Look
at the end of the article for further explanation.

Both are priced in US
Dollars.

Why are
the two borrowing rates so far apart? They can be viewed as a credit spread. The
OIS represents banks that have access to the Federal Reserve Discount Window and
the LIBOR represents a rate that doesn’t have access.

The banks
in the US that use that rate have access to the Federal Reserve Discount Window.
Therefore they are thought to be a better risk than the banks that do not.
Specifically, those that are trading the LIBOR that do not have access to the
Federal Reserve Discount Window (banks outside the US).

The wider
this spread gets, the worse it is for the economy because it means the banks
aren’t going to lend to businesses or consumers. Or, their lending will slow
significantly.

So
much information. So little time. I have been bookmaking web sites since
the year 2000. As of this writing I have 2,300+ sites in 9 master folders
and 477 sub folders. Following the credit crisis is not easy. It can be very
depressing. However, I’d rather be prepared. I’d also like to pass along the
sites I’ve discovered that I believe report more truth about what’s going on
than you’ll find in the mainstream.

Here
are the sites I like, for watching and learning about the credit crisis:

Lastly, RSS feeds are getting easier to use. If you go to Google.com and
sign up for their ‘Reader’, you can have an RSS feed up and running very
easily. That way you can know when your favorite web sites update. Check it
out.